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  • Historic Phase 1a Efficacy Data
  • Clearly Defined Approvable Pathway for GR-MD-02
  • Bidding War – Merck Do or Die Situation
  • Platform Technology Case Increases Valuation
  • NASH Trial Results no Longer a Binary Event

This is going to be a candid article about how Galectin Therapeutics (NASDAQ: GALT) news announcements have not resonated with investors despite the enormity of news and implications to all future cancer research.

Have you ever heard of Pembrolizumab?  You are not alone.  Few investors have.  Have you ever heard of Keytruda?  Sure you have.   Watch prime time television and you will see a commercial 3 times an hour.  You associate it with curing the dreaded cancer – Melanoma.   On Monday, November 12, 2017, Galectin Therapeutics told the investment community in the title of the press release that Pembrolizunab when paired with the Galectin-3 Inhibitor Gr-MD-O2 shows Promising Early Results In Treatment Of Advanced Melanoma from a Phase 1b Clinical Trial.  The press release failed to resonate with anyone other than academicians.  Investors didn’t know how to respond. What if GALT had simply replaced Pembrolizumab with Keytruda?  What a difference!  Then investors would fueling takeover speculation since GR-MD-02 seems to make Merck’s (NYSE: MRK) blockbuster drug Keytruda twice as good in 1/8th the time.  Making this a must have acquisition target for any drug giant including MRK.

It’s plain to see the “promising results” part of the headline however, explanation of the back story is needed. To get into this melanoma trial, you needed to be refractory, which means that you had tried all known drugs to mankind and nothing had worked.  In other words, you were admitted into the trial if you were considered practically incurable. The first goal of the researchers was see if the drug was safe.  Next, they wanted to see if it works, which translates into efficacy.  If the drug is safe and has enough efficacy based on a large set of patients, then they would petition the FDA for approval.  This is the holy grail that drug companies seek.  In this trial, when GALT’s GR-MD-O2 was paired with Keytruda (not Pembrolizumab) the response rate was nearly doubled.  Investors could imagine that those diagnosed with stage 4 Melanoma waiting to die in hospital beds all across America would be rioting if the FDA does not approve this drug?  People are dying (no pun) for something safe and that works.

Backstory Behind GR-MD-02

The clinical trial so far is based on 9 patients who have taken this combination treatment of GR-MD-02 and KEYTRUDA over the past 3 years.  It’s a phase one trial, which is only designed to measure whether or not the drug is safe.  The solid thing underpinning this clinical trial was the design.  No shortcuts were taken and they started out at a dosage of 1mg/kg even though there were approximately 1,000 doses of this drug already administered to patients in a phase I/II study for liver fibrosis and NASH at 8mg/kg.  At the beginning of the trial it was pretty obvious that the drug, GR-MD-02, derived from apples, was safe.  Let’s digress for a moment.  Think of one person who you know who is allergic to apples.  If you can’t think of someone then join 100% of the population.  The question of why the Providence Cancer Clinic didn’t start with a phase II study could be for a number of reasons but you will have to ask them or the  GALT management.  The simple truth might be that they are a bunch of highly acclaimed academics so shortcuts and quick drug approval are not in their DNA.  There are two sides to every coin and the positive is that the results of this study are beyond reproach which means no one will question their findings or data.

The 3 year duration of this trial can definitely plant seeds of doubt in investor’s minds.  When you delve into Portland’s statistics, they rank 5th in the rate of melanoma patients.  This translates to 2,200 Oregonians diagnosed yearly with melanoma, which is a target rich environment for clinical trials.  How can Portland’s premier cancer clinic only field 9 patients in 3 years?  People are probably thinking if this drug was any good then why didn’t they recruit patients faster?  The universal answer to that sort of question always seems to be “follow the money” but we will get to that later.  The press release blamed slow recruitment on “changes in the standard of care for metastatic melanoma (i.e. approval of Keytruda) recruitment has been slowed significantly.”

Bear with us as we set the backdrop a little more before the big revelation and talk about Phase I studies in general.  A phase 1a study in cancer almost never shows efficacy in the first cohort of dosing.  Let me put this plainly, generally A PHASE 1A STUDY IS DESIGNED TO FAIL.  If it doesn’t fail, then something truly remarkable is happening.  As a follower of biotech drugs, there is only one other drug, called DAVNAT, that didn’t fail and indicated efficacy during its phase 1 study.  This was over a decade ago and that drug made it through to a phase 3 trial but then got overshadowed by a much more potent formulation.  If you are reading this and actually know the name of the follow on drug to DAVNAT, then please feel free to skip to the conclusion.  Basically 99.99% of all new investigational drugs fail their Phase 1a exam and don’t show efficacy because by design they aren’t supposed to show a therapeutic effect, they are just trying to see if the body can withstand any side effects.  The takeaway is if a drug did show efficacy in a phase 1a safety trial especially in the first group of patients then something truly remarkable is happening.  Now if someone was actually cured of a disease in the first dosing group that would be a historic milestone in science on the planet Earth.

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Clinical Trial Analysis

It’s time for the big revelation of the clinical data with a detailed explanation of the following graphic.  If you are wondering why the graphic was so small and blurry keep in mind presentation is everything.

Waterfall plot of best clinical response (RECIST 1.1) post-treatment. Dotted line at -30% change from baseline indicates the RECIST 1.1 threshold for definition of partial response.

When entering a clinical trial, a patient’s disease is measured via scans and vital signs taken to establish a baseline.  In cancer, the rating scale is called RECIST and if it goes up from the baseline its bad because it measures the percentage of tumor growth.  If it goes down, then it’s good because it means the tumor is shrinking.  Each one of these 9 bars represent a patient.   If it goes up more than 20% it is called Progressive Disease.  If the tumor lesions have grown less than 20% and haven’t shrunk more than 30% it’s called Stable disease.  If the tumor shrinks more than 30% then that is called an objective response and the HOLY GRAIL that drug companies are looking for.  It’s extremely rare in a phase I cancer trial but if you max out the chart it’s called a complete response.

Cohort 1

All the blue bars represent patients that took between 1 to 2mg/kg.  Based on mice studies, 2mg/kg is the absolute lowest level at which you might see a response with GR-MD-02 alone.  The first patients dosed with 1 – 1.5 mg/kg saw their disease progress.  One of the patients who had head and neck cancer was dosed at 2 mg/kg.  His before and after picture is taken below.  He had a softball sized tumor on his collarbone and after 3 injections it resolved. The bottom line is that the very first dosage of the drug GR-MD-02 expected to have no impact had a dramatic impact on at least 2 patients measured over a course of 4 months.  Contrast this to the Keytruda phase 1 Trials that were scheduled for 2 years.

Cohort 2

These patients are depicted in red and ALL of them had an objective response in 4 months and one of them had a complete response.  Keep in mind that they only got 5 injections so this is not an apples to apples comparison.  No pun intended.  Keytruda’s 33% ORR is based on 2 years of treatment versus 4 months of treatment in combination with GR-MD-02 at half the therapeutic dosage.

Cohort 3 – Not Depicted

The next cohort will include at least 10 patients that will be dosed at 8 mg/kg.  They have begun enrolling cohort 3 and expect results in mid 2018.  What is ironic about this timing is that it has taken 3 years to dose 9 patients and now they are planning 10 and getting it done in 6 months.  It’s impressive how a couple complete responses in an incurable patient population gets the ball rolling.  What is disappointing is that had GALT’s management kept the eye on the trial versus their wallets and recruited just 3 more patients last year, GALT could have been half way into a Phase 2b pivotal trial.

Measuring the size of tumors is very important in the determination of cancer but the FDA ultimately cares about whether or not the patient lives and one of their metrics is called progression free survival (PFS).  They want to know if the cancer is going to come back.  Clues to that question rest in the press release as well.  They mention “there were no notable changes in the peripheral immune signature” in the low dose cohort which confirmed in these refractory patients that Keytruda simply wasn’t effective. The peripheral immune signature are the T-Cells present in the lymph nodes.  This means that the T-cells were still in the anergic state.  In lay man terms, the T-Cells were alive and programmed to kill cancer cells but they had a blindfold over them and couldn’t find the cancer cells.

They also said “clinical responders to the combination of GR-MD-02 and pembrolizumab may have reduced myeloid-derived suppressor cells following treatment.”  Myeloid-derived suppressor cells (MDSC) are responsible for the tumor immunity.  Reducing these cell counts restores the immune system to normal function breaking up the tumors immunity and allowing the body’s immune system to continue destroying the cancer cells.   Unfortunately phase I studies are not designed to follow up on the patients to see if their body was able to cure themselves after treatment ended but the statements by the Principal Investigators suggest that as a possibility.  If investors really think about what this ultimately means they might be thinking of the word “cure.” Chronic inflammatory factors stimulate myeloid-derived suppressor cells (MDSC) generation, migration and activation of immunosuppressive functions at the tumor site. Various cytokines and growth factors produced by tumor and stroma cells (such as VEGF, GM-CSF, IL-1β, IL-6, HIF-1α, TGF-β, COX-2, etc.) induce MDSC generation and expansion. Chemokines (like CCL2, CCL3, CCL4, CCL5, CXCL1, CXCL8, etc.) stimulate migration of MDSCs into the tumor microenvironment. At the tumor site, MDSCs undergo activation (via TNF-α, IL-10, IL-1β, IL-6, IFN-γ, COX-2, HIF-1α, etc.) and strongly inhibit anti-tumor reactivity of DC, T and NK cells.

Bidding War Imminent

The drug giant Merck (NYSE: MRK) is constantly facing pressure from Bristol-Myers Squibb (NYSE: BMY). In early October Amgen (NASDAQ: AMGN) announced data from its phase 2 combination therapy trial with BMY’s Yervoy and AMGN’s Imlygic (tamlimogen laherparepvec).  Combination therapy produced an ORR of 39% compared to 18% for Yervoy alone. The Keytruda and GR-MD-02 combination has an ORR of 62.5% based on half the therapeutic dose!  GR-MD-02 makes Keytruda twice as good as a minimum and within the next 6 months we might find out its makes Keytruda 3 times as good.  The key point that investors need to realize is that this is clearly an approvable drug at this point.  There are no safety issues and if the trend were to continue the higher dose of the drug might realistically yield all complete responses.  Right now there are 2 complete responses and if they get an additional 4 that would represent a 46% complete response rate which is unheard of and possibly will lead toward negotiations for a phase 2 trial partnership or buyout.

Platform Technology

There are at least 20 well documented diseases that implicate the galectin in the spread of these diseases and up to 100 diseases likely linked to galectins. So when big pharma talks about expanding platforms and pipelines, then one of the largest emerging pipelines in biotechnology is waiting to be developed with GALT’s galectin inhibitors. Imagine being able to target all of these indications including CANCER with one novel molecule. The chart below is hypothetically what GALT’s pipeline would look like if they had access to the right financial resources. With the potential to treat many diseases, many suitors should want to possess this technology.

KRAS-addicted Cancers Dependent on GAL-3

KRAS Oncogenes essentially feeds on the Galectin-3.  Approximate 30 – 50% of colon cancers have the gene.  It is also prevalent in lung and pancreas cancer.  If this protein were blocked it would prevent associating with KRAS.  Cancer Discovery cites “Galectin-3 as a druggable target.” This could lead to a collaboration and expansion of clinical trials in other cancer indications leading to orphan drug status and a short phase 2 study that result in quick commercialization.

Upcoming NASH Results – Risks

GALT’s Management team seems to have positioned the upcoming NASH trial results as a binary event and if they are good the stock will go up and if they are bad the price will fall. Let me be clear that these results could be extraordinarily good but there is a small risk that they might not have used a high enough dose.  The NASH CX study is powered at 95% which means that any hint of efficacy would show up in the data.  If the dosage was not high enough to meet the endpoint then those favorable trends would be seen as well.  The FDA’s bar for efficacy seems extremely low.  Intercept Pharmaceuticals (NASDAQ: ICPT) Phase 2b study which was stopped short and hailed for early efficacy pushing ICPT’s share price to $497 only showed a 3% improvement in stage 3 fibrosis over placebo.  For a disease without any treatment the bar for showing efficacy seems to be extremely low.   If the drug is safe, and GR-MD-02 falls into that category, then registration could be likely with the faintest hint of efficacy.

The primary endpoint in the upcoming NASH CX trial is a reduction of Hepatic Venous Pressure Gradient         (HVPG) by 10%.  Over a year after GALT’s announcement that they failed to meet endpoints there continues to be chatter that since GALT failed its NASH FX trial it’s unlikely they will show efficacy in the upcoming CX trial.  This logic is completely flawed because the NASH FX trials endpoint was measuring biomarkers that were not approvable endpoints by the FDA and no approved measure of efficacy like a biopsy was taken. The FX trial NEVER MEASURED THE DISEASE.  The upcoming CX trial measures the disease by the methacetin breath test, liver biopsy, and HVPG.

Strong Case for Efficacy

The preclinical studies for NASH, Immunology, psoriasis, Idiopathic Pulmonary Fibrosis (IPF) and atopic dermatitis implicate the Galectin-3 receptor.  Mice studies are very effective at validating drug targets such as the Galectin-3. Even though the genome of the mouse and a human is 99% similar studies fail when it comes to side effects and luckily GR-MD-02 has no issues in that regard.  Knockout Galectin-3 mice are “protected from fibrosis formation” which means no matter how much poison they are given fibrosis cannot take root. A mountain of peer reviewed work has been done on Galectins and preclinical galectin studies have translated to human trial results.  The results of GR-MD-02 in a human pilot study of atopic dermatitis achieved an improvement in the patients EASI score by 50%.  Another human pilot study of psoriasis achieved a reduction of over 50% reduction in their PASI score. Galecto’s TD139 galectin blocking drug helped slow the disease of IPF in a Phase II clinical trial.  The strong case for efficacy is based on the fact that the mouse trials seem to be completely correlated to the human trials when it comes to efficacy and safety.  The GR-MD-02 mice study for NASH was the most rigorous study ever done and was actually designed to fail yet it passed and actually reversed fibrosis. Investors really need to think twice before betting that this drug won’t work in humans.  In some clinical trials the dropout rate can be used to handicap the trial results.  In the NASH CX trial only 11 out of 162 patients dropped out of the trial.  This represents a 6.8% dropout rate when the company was expecting 25% dropout rate.  These metrics are way ahead of expectation and the galectin blockers are 4 for 4 in human trials.

Presentation is Everything

These clinical trial results on melanoma were so good that they should have had a conference call to go over them and explain how they might have cancer on the ropes and ready to deliver the knockout blow.  Instead the press release was buried by an announcement that Dr. Traber was named Chair of the Anti-Fibrotic Conference.  The author of the GALT press release should have explained things better to investors and this is why there is such a large disconnect between the stock price and the true value of the company.  The single biggest risk in this stock is having Dr. Traber give another poor presentation for the NASH CX trial results.  Research by the author has shown the stock averages a 3.1% drop on his news announcements.  This presentation risk could be mitigated by the Board of Directors.  A new slate of directors proposed by the 10X fund and strategic investor Richard Uihlein could mean an overhaul of the corporate image in the nick of time.

Investment Summary

The bottom line is that if they nail the endpoints in NASH, this stock has the potential of being the biggest biotech story this decade with a $5.0 billion + starting offer which is roughly double the Allergan (NYSE: AGN) offer to buy Tobira for $2.1 Billion for a drug that barely works.  The timing on this could literally be next week.  Price appreciation could be dramatic because approval of this drug that targets the largest unmet medical need in the world is probably worth tens of billions.  All investors have to do is look at the 6 fold appreciation of ICPT in one day on the FLINT trial results in January 2014.  In the event the presentation is flubbed or the efficacy is non-existent there is still a downside put in the stock because all investors have to do is wait for the melanoma results due in Q2 2018 on what appears to be a clearly approvable drug for cancer and atopic dermatitis.  In the past, on bad presentations, Uihlein has stepped in to support the company for funding 2 times before and there is no reason to think he wouldn’t step in a third time as a newly elected director of the company.  It’s reasonable to speculate that Uihlein has stepped on the board because he is frustrated with the poor communications of the company or wants to make sure the sale of the company on good trial results is negotiated favorably.

An investment in GALT has very little downside risk at this level compared to potential upside profit.  Investors should keep in mind that a Tobira sized offer assuming full dilution at 50 mil shares puts the stock price at $40/share.  The stock is severely discounted and not even remotely taking in the probability of a successful outcome.  With a market cap of about $100 million this represents a 98% discount to the expected $5.0 billion valuation of the trial results should they meet their endpoint expected to be released in the next two weeks.  It’s highly likely that a bidding war will ensue.  There is only ONE publicly held Galectin blocking biotech.  Galectin blockers have a 4 for 4 track record on efficacy in the past year and a half alone, this disconnect in value makes no sense with a company that also has a platform technology that could potentially use the drug on 20 other indications once approved.  There clearly seem to be no other NADAQ biotech with more upside potential because NASH is the largest unmet medical need in the world and this $100 million biotech may be presenting the solution to the world in as little as 2 weeks.

OCCAM’s RAZOR states that sometimes the simplest explanation is the right one.  If it looks like it works it probably does.

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